Earned Income Credit is a refundable tax credit meant to help working single parents. Normally, the way a tax credit works (nonrefundable) is that if an individual has paid $5000 in taxes for the year and qualifies for the $10,000 tax credit, they can only receive the $5000 they paid in taxes. If the individual paid $0 in taxes, the tax credit could be as much as $50,000 or more and they would get $0. With the refundable tax credit, the individual isn’t required to have paid taxes to get the earned income credit added to his or her refund amount.
 It works on a sliding scale where the EIC climbs up to it’s maximum (usually around $15000 in earned income) and as the income climbs above $15,000 the EIC slides down. Maximum EIC is usually around $5500. Finally at about $28,000, the EIC has decreased to $0. EIC is given only for your first two children from birth to age 17.
     The ‘married or unmarried’ couple with four kids will go in to a tax prep office, separate ones if they are experienced at this. And though each lives in the same house, each one claims the Head of Household status, which increases the amount they can deduct off of their taxable income and with each of them claiming EIC they can receive a checks totaling up to $10,000 for end of year tax filing season. The Head of Household is supposed to be for those who are receiving no other support from anywhere else. The Head of Household must be providing for that Household, so if there is a boyfriend, girlfriend, spouse, parent etc living there, and contributing to bills they cannot claim that designation.
      These cheats will do this for years before they are caught, but once caught, they are not allowed to claim EIC for ten years following a fraud investigation. They will then have to pay back incorrectly paid EIC and pay penalties for fraudulent returns on top of that of up to 75% of the amount that the IRS was defrauded.

How They Get Caught

 Every time an individual opens a bank account, purchases a car, or rents or buys a home there is a little note made that identifies their Social Security number with that transaction. Obviously someone whose earned income doesn’t reach over $15,500 isn’t going to go buy a $35,000 vehicle, or a $200,000 home. These cheats do not realize that they are putting a huge target on their back that screams, “Audit Me!” to the trained IRS auditors. You can’t have it both ways and claim to make enough income to pay off your purchase on credit and then on another form claim that you didn’t make enough money to pay taxes.
 There is a storehouse of this information, and the IRS does take note of logical errors. Example; A man came into a tax office and said proudly that he was the father of nine children with seven different women and that his total income for the year was under $3000 and he wanted to claim half of his kids before their mothers did so he could get the refund first. There is no way on this earth that a man on his own can pay for food, rent and gas on $3000 annual income. And he wanted to claim that he supported these children too? He went to prison a year and a half later, but his kids are doing just fine without him.